Rethinking Retirement

I find it interesting how society creates arbitrary rules that become the expected norm over time. Retiring at age 65 is one such example.

I’m not 100% certain, but I strongly suspect that the original Social Security Act, which was passed in 1935, had a lot to do with setting this expectation. It set an age of 65 to receive full retirement benefits. While the age requirement for receiving full benefits has been slowly increasing to 67, the “retirement age” in most people’s mind is still 65.

I believe it’s time we need to rethink retirement. We need to re-evaluate what it means to retire, and the age at which retirement starts. Here’s why.

What has changed since 1935

US Life expectancy graph

In 1935, the average life expectancy was just over 60 years old. The average age of the US population was around 30 years old. The population of the US was 127 million.

Fast forward to 2019, and the average life expectancy in the US is approaching 80 years, old, the average age of the population is approaching 40 years old, and there are 327 million people (see this Wikipedia entry for an overview of demographics in the US).

What does this mean?

It means that the demographics have shifted considerably over the last 85 years, but our retirement expectations have not. We still expect to retire at age 65 even though our life expectancy has increased significantly. The average age of the population has gotten older. The rate of population growth is slowing. If we were to set the retirement age using the same formula as they did in 1935, my guess is that it would be closer to 75, if not 80.

Why shifting demographics matters

Retirement programs such as pensions and social security rely on two fundamental factors

  1. More people working that are paying into the retirement program than people drawing out of it.
  2. A workforce population that is growing faster than the retirement population

Unfortunately, the demographics are working against us. The population is starting to age faster. More people are entering their retirement years. People are living longer in retirement. Meanwhile, the workforce that supports the retirement programs is not growing fast enough to support the growing retirement population.

Changing expectations

Demographics may be working against us, but there is a significant factor working in our favor. The nature of work is changing, for the better.

At the turn of the 20th century, most jobs still involved a lot of manual, physical labor. It was physically demanding. It involved a lot of strenuous, sometimes repetitive movements. Retirement from these jobs was required because an aging body could no longer perform the physically demanding tasks.

Today, more and more of these physically demanding jobs are being replaced by machines. Physically demanding jobs are becoming more the exception than the rule. Today’s workforce is more likely to be employed in knowledge work or service jobs. These occupations do not require physical prowess. They require mental acuity and interpersonal skills. These are traits that can be maintained well into old age provided one is motivated to work. Older individuals can be just as effective and productive at these types of jobs as their younger counterparts.

However, once again, societal norms get in the way. We aren’t accustomed to seeing older people in the workplace or working behind a counter. We’ve been conditioned to expect that people who are older should not be working, even if it’s necessary for the preservation and betterment of society.

Bridging the gap

Here are some of the changes I feel need to happen to rethink retirement:

  • As we age, we need to modify our expectations regarding roles. For some reason, it is assumed that older people will be those in management positions or running companies. It doesn’t have to be that way. Companies need to embrace individual contributor roles for older workers, and embrace these types of roles as we age.
  • Our salary expectations have to change. We expect that as we age our salary will continue to grow. We should view our salary expectations as an inverted ‘U’ or ‘V’. We can expect our salary to grow during the early years of our career and then to plateau or decline as we age. It’s simply a reflection of our inherent value in the workforce.
  • We need to embrace always being a student. To keep our mind sharp, we should always be working on and learning new skills. It’s how we maintain our value. It also helps to keep us young at heart.
  • Companies need to embrace part-time and job sharing roles in the workplace. There are a lot of people who would be willing to continue working if there were able to work a reduced schedule. For some reason, companies tend more towards an all-or-nothing approach. You’re either working 50-60 hours per week, or you’re not working at all.
  • Age discrimination needs to be recognized and addressed in the workplace. It exists, and it’s real. I think it comes down to expectations of roles and salaries. Employers expect that older people will want more prestigious titles and higher salaries. These two issues are linked and need to somehow be addressed to open up more opportunities for older people who are comfortable in individual contributor roles.
  • Public programs, government pensions, and private pensions need to change the distribution of benefits. Distribution ages need to be brought more in line with life expectancy. The reduction for taking benefits early needs to be more aggressive to encourage people to continue working or delaying their benefit draw.
  • Private savings programs, such as 401k, IRA, and other programs should allow contributions to later ages. The age at which mandatory distributions are required should be made later. On the other hand, the age at which people can start drawing benefits should remain as is. In other words, people who choose to retire early and have saved the money to do so should not be penalized.

Facing facts

Rethinking retirement and overhauling the current system is not a political issue. It isn’t a Republican or Democrat problem. It’s a societal issue. It’s a matter of facing facts. Something has to be done to alter the current system or it will not survive. It’s a matter of changing the expectations of society. We have to come to grips that retiring at 65 is not an inalienable human right. It is an arbitrary guidepost. It can be changed. We can move it, and we have to if we want to preserve and maintain a viable retirement system, whether if be social security, government pensions, or private pension programs.